Public Bill Committee

[Mr. Peter Atkinson in the Chair]

Clause 18

Power to make modifications

Amendment moved (this day): 36, in clause 18, page 16, line 21, at end insert
(d) the minimum notice period by which the licence holder must inform their customers of any change in their energy tariffs..(Simon Hughes.)

Peter Atkinson: I remind the Committee that with this we are taking the following:
New clause 4Transparency on energy bills
(1) The Secretary of State may modify
(a) a condition of the licence of section 11A of the Electricity Act 1989 (transmission licences and supply licences) to make provision on energy bills for information on the cheapest tariff available to the customer from their supplier;
(b) a condition of the licence of section 23 (1) (b) of the Gas Act 1986 (transmission licences and supply licences) to make provision on energy bills for information on the cheapest tariff available to the customer from their supplier;
(c) the standard conditions incorporated in licences under those provisions by virtue of those Acts;
(d) a document maintained in accordance with the conditions of licences under those Acts, or agreement that gives effect to a document so maintained..
New clause 18Limit to number of energy tariffs for residential customers
Within six months of the passing of this Act, the Secretary of State shall, by regulation, limit to no more than 10 the number of tariffs which each energy supplier may offer to any residential customer..
New clause 19Publication of energy tariffs
(1) Within six months of the passing of this Act the Authority will publish or cause to be published, at least three times a year, in national, regional and local press a full list of energy tariffs [the consumer energy price list] applicable for the next period of six months.
(2) The dates of the publication of the consumer energy price list shall be during the thirty days before
(a) 1 April,
(b) 1 September, and
(c) 1 January..

Simon Hughes: On a point of order, Mr. Atkinson, may I take off my jacket and suggest that those who wish to join me do the same?

Peter Atkinson: You may.

Simon Hughes: We were talking about Ofgem. I was quoting from the Energy and Climate Change Committee evidence session of early December when, among others, the hon. Member for Amber Valley, who is not in her place, was quizzing Mr. Alistair Buchanan, the chief executive of Ofgem. I had just come to the point in their last exchange when the hon. Lady was suggesting that there could be immediate action to deal with the anomaly that the current rules allow energy suppliers to increase their prices but not tell their customers for 65 days. Mr. Buchanan said that he was going to talk to Ofgems consumer panel and that it was to be its first project.
Does the Minister agree that, whatever the history, it is nonsense that people can be told about a price increase three months after it has happened, but have a much shorter periodonly 20 working daysin which to change supplier as a result of that price increase? Does she agree that something ought to be added the Bill to deal with that through licence conditions? What will the timetable be if there is not such a change in the Bill? How long will people who have had increases or are going to have increases have to wait before the law or the policy is changed, so that they get advance notice of any increases?
The amendment is entirely of merit and would be hugely popular among users. It would do nothing adverse to the utility companies. It would, however, give them the advantage of up to three months of increased price and payment from customers, and a reduced chance of the customers changing to another tariff. All the eggs are in the basket of the utility companies and none of the advantage lies with the consumer.
I have covered the amendment in the group. There are also three new clauses, one of which is in the names of Conservative Front-Bench Members. New clause 18 would
Within six months of the passing of this Act,
require the Secretary of State to
limit to no more than 10 the number of tariffs which each energy supplier may offer to any residential customer.
When we were questioning the representatives of the six companies, they told us, in general terms, how many tariffs they had and accepted that, historically, they had had a huge number of tariffs. They explained that some were historic and that there were so many because each region in England, Scotland, Wales and Northern Ireland had separate arrangements. We have had helpful responses because we asked them how many tariffs they currently have.
The conclusion is that there are still hundreds, if not thousands, of tariffs. From the point of view of the consumer, the situation is still extremely confusing. The backdrop to the new clause is not only my concern that the current situation is thoroughly confusing, but the not untypical experience of a constituent of my hon. Friend the Member for Kingston and Surbiton (Mr. Davey).
Margaret Erskine has been in a long-running dispute with npower, which I have taken up with npower and Mr. Buchanan. With her agreement, I am going to summarise her complaint, as set out in a letter to my hon. Friend in November. She applied to be an npower gas and electricity customer on 19 May 2006 and an agreement was made that no more than 4,572 units would be charged for gas at the higher unit rate. She was entitled to a discount because she was receiving both gas and electricity from the same supplier and was paying by monthly direct debit.
In her first year as a customer, she was charged 4,432 units, just below the figure that she had been given at the higher rate, and clearly within the rules set out. However, in the following year, to 15 May 2008, she was charged 6,194 units at the higher rate. That clearly did not satisfy the agreement that no more than 4,572 units would be charged at the higher rate.
I am going to pause here, because the issue about the nature of the tariffs and how they are described also relates to the debate that we will have later about investigations and the timetable for investigating. The Minister will be aware of that issue because we have discussed it in general terms before. I am not going to repeat the same facts twice, but I lodge with her the fact that this case has two implications in terms of the transparency of the system and the investigatory process.
Margaret Erskine took up the matter with npower and would, I am sure, be happy to release the correspondence generally. She was told that for the year from 1 November 2007, no more than the published total of 4,572 units would be charged at the higher rate. It was perfectly clear to everyoneher phraseapart from npower and Ofgem, that this was not so for any year that included the six months between May and November. The point that she discovered was that npower effectively changed its tariff year when it introduced a new tariff. Unbeknown to her, the year that ran from when she started, and annually thereafter, did not qualify her for the benefit of a lower tariff charge after the higher number of units.
We have all probably paid bills in which the first set of units is paid at a higher rate, which then diminishes. I think that has always been an unfair system because low users and poor users are inevitably charged at a higher rate per unit than high users, who get a discount once they use more than a certain amount.
I have always felt that there needs to be a system that does not give a benefit for using more energy. It seems a perverse incentive; we should be trying to incentivise people to use less energy, not more. One reason for transparent tariffs is to expose the fact that at the moment there is a benefit to the companies from those who use less and a disbenefit to them from those who use more, given the amount of money that people pay.
A most extraordinary explanation was given in a letter from npower, which states:
We took this (ie the abnormal number of higher units charged in the period 1 May to 31 October 2007) into account when we set our lower gas charges in April 2007.
Miss Erskine, however, says that that is complete nonsense and has shown that the balance for the six months that would have given her the advantage if they had been counted from the beginning, and that for the following six months, were similar. Before setting out the comparative tables that show how unfairly she was treated, she writes:
Since more units were being charged at the higher rate from 1 May 2007 and since the rate of charge for these units was increased, the result was an even higher charge than before. The possibility of gaining from the reduced rate for the balance of the units was remote, in the summer months, for most customers. The hope expressed in the letter that ...its now a bit clearer went down like a lead balloon!
She then states that the seasonally weighted profile is detailed in the letter of 7 July and outlines what actually happened in the relevant year, before concluding very strongly on the lack of action and senseless explanations from Ofgem.
That information has been of use because it has amplified one of the complaints about the system. To be fair to the companies, the general message that they had too many tariffs and that the system was too complicated has been getting through. The companies have supplied us with the summaries of their current tariffs, which we requested when their representatives attended our evidence sittings. A survey of utility companies in a Spotlight article in the August 2009 issue of Call Centre FocusI was not previously familiar with the magazineconcluded that Scottish and Southern Energy Group, to be fair to it, had the greatest customer satisfaction of all the big six utility companies.
Scottish and Southern Energy Group states that it
currently offers 13 distinct nationwide energy products across its four regional supply businesses: Scottish Hydro; Southern Electric; Swalec and Atlantic.
It then sets them out. The first two are Standard Energy and Standard Energy Onlineone pays less online. There are also energy saving tariffs including Better Plan, which provides discounts for customers who reduce their energy use by 10 per cent. There is also an M&S vouchers option called M&S Energy. There are three discount tariffs, one of which offers 10 per cent. off purchases at Argos and Homebase. Another involves discounted high street vouchers for participating stores, and the other is a social tariff.
There are two time-limited tariffs: Atlantic Online FP and Price Fix 4 August 2011, which fix the price over a longer period. The other three are energyplus Pulse, which provides support for the British Heart Foundation; power2, which is a green tariff involving tree planting and other initiatives; and Go Direct 2, an online tariff with paperless billing and direct debit. There are also regional variations and
a discount available from standard credit for those who pay by direct debit.
Moreover, there are prepayment meters and Economy 7 and Economy 10 options.
That illustration, from just one of the six companies, shows the breadth and range of options available. Anybody interested in our affairs can see the evidence submitted to the Committee outlining the companies tariffs: Scottish and Southern Energy Groups response is in the document entitled EN 10, ScottishPowers is in EN 11, and so on. Colleagues will be pleased to hear that I will not read all of them, although I am tempted to because they show the complexity of the product. [Interruption.] I could indeed read them all, if encouraged.
The conclusion, however, is that there are all sorts of variations. There are discounts for prompt payment. There are still discounts for prepayment meters and monthly direct debit. Then there is a whole range of different types of tariff, sometimes with slightly unhelpful or misleading names: capped deals, fixed deals and tracker deals. Sometimes the deals stay on the adopted tariff, sometimes they revert to a previous tariff.
I am sure the Minister must agree with me that from the point of view of the ordinary consumerthe person who does not have all day to spend weighing things up: who runs a home or has a busy life; who may not be well, or who may be fit but busy; who may not be terribly numerate or literate; who may be poor; or who has other pressureswe could be much stricter in what we require Ofgem to insist on. That is why my colleagues and I have said that it must be reasonable to say that in any part of the country there is an upper limit to the number of tariff options10 for any customer in any product.
Of course, the figure 10 is arbitrary; it could be 12, eight or six. I am not seeking to argue that there cannot, for good practical reasons, be different tariffs in different parts of the country. However, for one user in one place I would like the Minister to say whether she supports the range and variety of options that exist now, or whether she agrees that Ofgem has been a paper tigera toothless wonderin trying to ensure that the utility companies serve their customers rather than themselves. There are many people, as Margaret Erskine discovered, who pay more than they should pay because they could not work their way through the minefield of options and come out safely on the other side.
That leads us to new clause 19, which is consequential on the other new clauses. It requires that
Within six months of the passing of this Act
Ofgem
will publish or cause to be published, at least three times a year, in national, regional and local press a full list of energy tariffs...applicable for the next period of six months.
We have chosen three months. It could be two months, twice a year or quarterly, because there are, for most people, three times a year when they think of a new start and new beginnings: the new year, when people plan for the year ahead; the new financial year at the beginning of April; and, for a lot of people, there is the new school and academic year, which also precedes winter. We are not so bothered about that. It could be quarterly, but I hope the Minister will agree that it is about time that people were able to find, in one place at one time, in an easily accessible way, a league table that gives the up-to-date informationjust a grid and a list of suppliers and optionsso that they have the best possible chance, in a way that is directly comparable.

Michael Weir: I have listened carefully to the hon. Gentleman and I understand his point. What strikes me as one of the problems for consumers is not so much the number but the complexity of the individual tariffs. Even if presented with the choice of two, it is often very difficult to work out which tariff suits a persons circumstances and is the best one to go for. I am just a bit concerned that new clause 19 would not be able to determine the best tariff for an individual person.

Simon Hughes: I understand that point, and the hon. Gentleman is right. I would like a combination of both, to be honest. In its memorandum to the Committee, Ofgem told us that it requires all the energy companies to have best practice that should advise people about the cheapest tariff. However, that does not go far enough. Out of fairness to Ofgem, I want to put its policy on the record, to pick up on the point made by the hon. Gentleman, and add another about where it ought to go next.
Document EN 13, a memorandum submitted for our deliberations, states that, following its energy supply probe,
Ofgem has put into place a package of reforms to make it easier for consumers to understand their bills and engage with the energy market...From 1 September 2009 Ofgem introduced two new licence conditions which stop suppliers charging more for one payment than another. The first requires that any difference in the terms and conditions offered in respect of different pay methods must be cost reflective.
We have already touched on that debate. It continues:
The second prohibits undue discrimination between terms and conditions offered to different groups of customers.
I am still not persuaded. I understand the argument that if people have a prepayment meter, which is a bit of kit they receive only if they ask for one, it costs a bit more. There is therefore a differential cost to such customers and it is proper to reflect that. That is still unfair because the people who have prepayment meters are generally those who are most strapped for cash. Either they are paying more themselves or the burden is spread over everybody else.
In this market where the choice of suppliers is so limitedunlike the telecom market or groceries, where hundreds of options are availableI can see no justification for a differential unit price, according to whether one pays by cheque or direct debit or prepayment meter. A fair system would not give advantages to people who are, bluntly, the most affluent, the best off, the most organised and who run their lives by direct debit because they know there will always be enough in their bank account. It is unreasonable that the charge should be higher for those who are not in that position and who have things like prepayment meters, either voluntarily or forced on them. Ofgem has not gone far enough to get rid of the unjustified price differences.
Under the heading Clearer information on bills the memorandum from Ofgem states:
From July 2010 energy suppliers will be required to make significant improvements to bills to aid customer understanding and help them compare tariffs. Under the new rules each bill will need to display:
The tariff name
The customers consumption for the past 12 months in kilowatt hours
The projected cost in pounds per year if the customer remains on the same tariff and uses the same amount of energy
Suppliers will also have to supply customers with an annual statement containing this information plus the principal terms and conditions of the tariff. It will also:
Point out any premiums or discounts that apply to the tariff compared to standard monthly direct debit with the same supplier
Contain a reminder that the customer can switch along with advice on how to do so
To underpin these rule changes, from September 2009, Ofgem also set out over-arching standards of conduct that set out how we expect suppliers to behave. For example, suppliers should not sell a customer a product that they do not fully understand or is inappropriate for their needs and they should not offer products which are unnecessarily complex or confusing.
We also looked into the issue of the large number of tariffs that are currently available and decided that, at this time, any restriction would have negative effects on customer choice (eg there are currently a variety of different payment methods available, green tariffs, capped rates and social tariffs) and the ability of suppliers to innovate. However we recognised the issue of customer confusion which our remedies sought to address.
Given the detailed investigation that has been undertaken, Ofgem believes it is appropriate to allow the remedies that have been imposed time to take effect. Ofgem will closely monitor the impact of the new measures and remains willing to amend the remedies should they prove insufficient in addressing consumer concerns.
I am, to be fair to Ofgem, aware that it has said that the situation is still confusing. We have taken some measures and others will be taken. To deal with the point made by the hon. Member for Angus, unless a customer can be told on their bill, over the phone or both what is the cheapest tariff for them, often, they will not avail themselves of it and will pay over the odds.

Michael Weir: I think that gets to the point. As the hon. Gentleman quoted, Ofgem says that suppliers should not sell a customer a product they do not fully understood or that is inappropriate for their needs. My slight worry with his amendment is that if we are publishing simply a list of tariffs, it will be very difficult to look at individual needs within that. There needs to be more contact between the supplier and the customer to discuss these individual needs, rather than a simple table for a customer to stick a pin into to choose a tariff.

Simon Hughes: I absolutely agree. A good consumer world would be one where, three times a year, there was a table, a contact phone number, an e-mail address and a website for those who wanted to check all the implications, but also a little explanation of the particular characteristics of a tariff, together with the price. Then there would be the good practice referred to in the conversation, What is good for you? However, a person would also be told about the cheapest option on offer from ScottishPower, npower or whatever.
New clause 4 has been tabled by the hon. Member for Tunbridge Wells (Greg Clark) and his colleagues, and signed up to by my hon. Friends and me. It would implement an additional measure to do what we have been talking about and ensure that the cheapest tariff is available on bills sent out by companies. A person should receive a bill and, in addition to the things they are now going to be told, they should be informed of the cheapest option.
We are on the way to improving the system, but it has been terribly slow and people have paid hugely over the odds. The poor have been greatly disadvantaged, and I hope the Government will be at least as robust as they have sounded recently, and indicate either that they will accept the amendments and new clauses, or that they will insist that Ofgem implement those measures later this year, unless there is a marked improvement in the ease with which customers can choose cheaper and clearer tariffs. This is an important issueit is one of the biggest energy-related issues in the countryand I hope the Minister will be responsive.

Charles Hendry: The amendment and new clauses are bound together by the desire to give more information to consumers. There is a growing sense that consumers do not have enough information to make real choices, and the Bill provides us with a vehicle for making the necessary changes that would give people the opportunity to make informed choices and ensure that they receive the best deal available.
Amendment 36 has significant validity. A consumers only being notified three months after a tariff has changed is something we would simply not accept in any other aspect of our lives. I hope the Minister will come forward with a positive response. If she will not accept the amendment, I hope she will indicate how the matter could be addressed in another way.
The background to the legislation is the perception on the part of consumers that they are not getting the right deal from their energy companies, although they cannot tell. There is too much opaqueness and a sense that although retail prices go up quickly after wholesale prices rise, they do not come down as quickly once those wholesale prices decline. We know that Ofgem held an investigation into that, but it looked only at whether there was a general market failure across a range of companies; it did not look at the behaviour of specific companies. Together with the Liberal Democrats and others, we are keen to ensure that consumers are given as much information as possible in order to choose.
Companies are already beginning to go down the route of giving people more information. They recognise that there are some aspects of peoples bills about which they would like greater clarity. For example, companies are now providing details about the extra charges in bills that have nothing to do with the actual electricity bills. ScottishPower is incorporating elements that state that wholesale energy costs account for 54 per cent. of peoples bills; delivering energy to their homes accounts for 19 per cent.; looking after the energy account accounts for 18 per cent.; and the VAT and Government obligationsrenewable energy, social incentives, the carbon emissions reduction target, profitability of retailers and other aspects accounts for 9 per cent. Companies are telling people that they should be aware of how the bill is broken down. Centrica uses a rather effective radiator symbol to indicate how the different elements stack up in peoples total gas bill, and it uses an energy efficient light bulb symbolI am glad to sayto show how they apply to its electricity bills.
First Utility is perhaps the company that has led the way. Its starting point when taking on a new customer is to equip them with a smart meter. It believes that a smart meter can be used properly only if people understand what they are paying for, and what the opportunities and options are elsewhere. The bill shows people how many kilowatt-hours they have used per month, and the cost for each of the previous four months. It gives a breakdown of the hours of the day when consumption is high and when it is low, so that people can begin to understand what might cause that, and react to any surprise elements. It gives an hourly-spend figure and considers the four-week usage elements as well. The consumer can therefore look at that bill and say, I understand why I am paying this much money. I understand why I am using more energy at this time of day, or I am surprised by that. What is running in my house that is using up so much electricity? What can I do to address that issue and further reduce my bills?
It is said that smart meters will not necessarily reduce peoples bills, but they will if consumers chose to use them intelligently. They give the power to the consumer. Other things such as smart grids will in time reduce demand but the key element of the smart meter is that it will ensure that consumers are in charge of their consumption patterns and tariffs.
We are keen to push things further. The new clause is straightforward. It simply says that consumers would be told on their bills what tariffs they were on, which would be the cheapest tariff available to them and how they would go about switching to it. The hon. Member for North Southwark and Bermondsey referred to changes that Ofgem is bringing in, but the annual statement does not provide the up-to-date timely information that consumers require and would find helpful. It shows the comparison only between the consumers tariff and the standard direct debit rate, not between their tariff and the one that would be the cheapest and most appropriate for them.
The new clause is a starting point, and we have tabled it in a way that we hope will be extremely easy for Ministers to accept. We would like to go much further, but by going for a modest initial approach we hope that the Minister will say yes, and that we can then explore further. I realise that that is a vain hope, but there is no reason to lose hope this early in the afternoon.
We think that other things should happen in due course. Consumers should be empowered by having information on their bills about how their household consumption compares with that of similar households in their area. First Utility will be doing that shortly, so it is clearly technically possible. It means that the consumer can make an active comparison between the electricity and gas they use and what would be expected for a house the size of theirs.
They should also have information about the environmental charges, because if we want to engage people in a real debate about climate change and energy efficiency, they will need to know what they are paying for those things. That information is hidden away rather opaquely in their bills, which means that we cannot have this important and honest debate with the public. If they know what they are contributing to the costs of the renewables obligation certificates, the European Union emissions trading scheme and the carbon emissions reduction target, they can say, Okay. I think Im getting value for money. I think this is important. Otherwise, we will have an abstract debate about moving in the right direction, without the public ever understanding what amount they are contributing.
I also hope that the levy for carbon capture and storage will be a clearly explained part of the Bill, rather than something tucked away in the figures, so that people can see what their direct personal contribution will be. I hope that that will enable us to have an honest debate about pricing. Those measures put the consumer in charge and enable them to make the right choices about the right pattern for them.
I understand the appeal of new clause 18 and why the hon. Member for North Southwark and Bermondsey has chosen to table it, but we have to beware of perverse consequences, as the hon. Member for Angus mentioned. If we were to go down the route proposed in the new clause, it would be possible that a company wishing to introduce a new tariff could do so only by removing an existing one that might be popular. The wording does not make it clear whether historical tariffs would be allowed to be maintained, or whether when a new tariff was introduced people would be forced to migrate from an existing one that they might have opted into, to something that may or may not be as good for them.
Many of the tariffs on offer are clearly time-related; they are linked to people committing to a certain price over a period of months. That may make it more difficult, according to when the time scale is to be introduced and the particular publication point at which it could happen. We understand the principle and thinking behind itit is intended to enhance simplicitybut we need to be persuaded that there will be no perverse consequences.
The driving point is to give consumers more choice. A key area in trying to deal with fuel poverty is to ensure that consumers actively consider their opportunities to switch. In an earlier debate on the Bill, we heard about the range of issues and how complicated it can be to switch. Many people start the process but do not continue to the final act of switching, because it seems too complicated and they cannot be certain that they will be better off. We want to ensure that consumers have that information, so when they try to make an accurate comparison they can be in no doubt as to what is the best tariff to suit them and their circumstances.

Joan Ruddock: This has been a very interesting debate. We have heard a lot of suggestions about what is best practice, and the hon. Member for North Southwark and Bermondsey has raised many cases of the very worst practice.
First, I need to look at the technical details of amendment 36. It seeks to amend clause 18, to extend the list of provisions in the Secretary of States powers to include the ability to set a minimum notice period for suppliers to give consumers of changes to their energy tariffs. Clause 18 is designed to prevent the exploitation of market power, which leads to generators obtaining excessive benefits. The notification of tariff changes is therefore out of the scope of the clause.
In any event, clause 18 applies only to generation licences. The amendment would require the modification of supply licences and would therefore need to be a self-standing provision to be effective. I suggest that the amendment makes no sense in terms of the clause against which it is tabled. Having said that, I have every sympathy with the sentiment behind the amendment. Both the Government and Ofgem recognise that energy tariff changes are a matter of concern and, of course, action is being taken to address those issues.
I will deal with the issues, even though I am making the case that the amendment is out of the scope of the clause. Following its probe into the energy retail markets, Ofgem highlighted the need for suppliers to notify customers of a price increase as soon as possible, and preferably in advance. It also announced a number of licence modifications effective from yesterday. Those modifications included an extended period of 20 days for customers to notify their supplier that they wished to switch tariffs following a price increase. When customers notify that they want to switch, the price increase will not apply to them. There is a requirement for suppliers clearly and prominently to explain to consumers the right to switch in order to avoid price increases, and extra time for consumers in debt to switch after being notified of a price increase, to give them an opportunity to clear their debt and switch.
It is quite clear that Ofgem has made a number of responses to the issues raised over a period of time by many hon. Members and by the Government. The question that we have to ask, which is clearly posed in this debate, is Is this enough? I do not think that it is, if energy companies can still take 65 days to notify. I am told that energy companies are generally taking much less than 65 days to notify, and Ofgem has made clear what is expected in terms of best practice. It has also said that it is keeping the matter under review. I intend to draw this debate and the strong feelings expressed here to Ofgems attention and ask it to address the matter urgently.

Simon Hughes: I understand the Ministers point on the technicalities and I am grateful for her tone on the substantive arguments. It should not be that a supplier should preferably notify a customer in advance. Does she agree that there is no excuse for a supplier of a product not telling somebody about the cost of that product in advance? I know of no other regularly bought and sold product in this country that somebody could buy or sell without knowing that the price has increased for a week, two weeks, a month, two months or three months. Does the Minister agree that that is unacceptable? The position should move to informing in advance and to giving people the opportunity to change product or supplier.

Joan Ruddock: As I said, I have every sympathy with what the hon. Gentleman has said. We have to allow Ofgem to work this through because if energy companies have to give prior notification to every customer, they will need a mechanism that requires a lot of people to be engaged in transferring the information at the same time.
Under the current arrangement, companies can spread the notification over a period of time. That makes a lot more sense administratively; a company could get so many people in to do a particular task and not need them again until there was another price rise or tariff change. One has to acknowledge that it is not absolutely clear how the transfer of the information at the same time would be organised cost effectively. If something costs more money to do, the cost is passed to consumers.
We need Ofgem to look into the situation in great detail. As the hon. Member for North Southwark and Bermondsey said, the current provision means that only those who have the ability to know will know, but those who do know have a new opportunity to say that they wish to cancel, and they will not bear the penalty of the increased tariff. We have made some progress, but I ask, as the hon. Gentleman does, whether it is enough. I do not believe that it is.

Anne Main: I cannot be alone in having received some helpful phone calls from the Government asking whether I am in debt and worried about my financial security. I am sure that an automated telephone call could be generated to allow people to know that in a months time their energy bill will be altered. I cannot see that that would need armies of people.

Joan Ruddock: The hon. Lady may be right. All I am really saying is that we made the position clear; the Secretary of State for Energy and Climate Change, when he gave evidence last October, said:
I do not think it is acceptable that customers should have to wait 65 days to be informed of price rises. Ofgem have a specific mission that the best practice is notifying consumers of a price rise as soon as possible, and preferably in advance...I think 65 days is a pretty long backstop.
We have made it clear where we stand. A mechanism needs to be found.

Sitting suspended for a Division in the House.

On resuming

Joan Ruddock: I was about to address new clause 4.

Phil Willis: I was about to intervene before the Division bell went. I apologise for not being at this mornings sitting. While I find the Ministers remarks, in response to my hon. Friend the Member for North Southwark and Bermondsey and the hon. Member for Wealden, to be conciliatory and understanding, the reality is that in October the Secretary of State, no less, said that the situation was unacceptable. The Minister of State says, in this Committee, that it is unacceptable. She said that my hon. Friends amendment is flawed, and we accept her understanding of that. Surely, all she need do is say to the Committee that she will bring back, on Report, a new clause that either instructs Ofgem to instruct the companies, or instructs the companies themselves, to have an appropriate scheme in place by a specific date. Why will she not just simply do that?

Joan Ruddock: I think that I simply will not do that because I have already indicated how I expect it to proceed.

Phil Willis: Procrastination.

Joan Ruddock: No, on the contrary. It is reasonable that Ofgem has had an opportunity to consider the issue. It has said that it is looking at it. We all agree that something more needs to be done, and some things have been done, as I have described. There will obviously be a further opportunity for me to be questioned on the issue.

Phil Willis: Will the hon. Gentleman give way? Apologiesthe hon. Lady.

Joan Ruddock: If the hon. Gentleman refers to me as a gentleman, he will find that I will not give way.

Phil Willis: The Committees proceedings have been conducted with a real sense of co-operation and a real desire to achieve outcomes for some of the poorest customers, particularly the fuel-poor. Ofgems record, however, has been deplorable. The Minister and the whole Committee know that Ofgem has been one of the most useless and toothless organisations it has been possible to invent. No Minister of State should simply say, Im going to pass this on to Ofgem to consider in the fullness of time, and at some point in the future people might get an account sent to them by which the price increase is indicated on time.

Joan Ruddock: I have made my position clear on all counts, and, as I have indicated, I will be in touch with Ofgem. I know that work is being done, and I will see that I am in a position to report further to the Committee. [Interruption.] I should make some more progress.
Mr. Brian Binley (Northampton, South) (Con) Will the Minister give way?

Joan Ruddock: I will give way on this occasion, but we need to have some regard to our lack of progress. We still have a lot of new clauses and amendments to cover, and I would like to make some progress.

Brian Binley: I am most grateful. The Minister has been kind during the whole process. I am, however, confused. The Minister welcomed the fact that action could be taken on this important issue, but Ofgem is not flavour of the month with many people in the industry because of its inability to get real involvement in those areas. Thirdly, we have the Minister later taking additional powers. The whole thing is confusing. Why does she not only simply tell us that something needs to be done, but take the opportunity to come back on Report with an inclusion, or even an acceptance of the new clause tabled by my hon. Friend the Member for Wealden? The Minister should do something in the Bill, so that we all know that when she says that there are things to be done, she really means it.

Joan Ruddock: The hon. Gentleman asks that I bring something back on Report and do something in the Bill. That is not necessary; we want to get action, and action by Ofgem does not require further provision in the Bill. I have undertaken to ask Ofgem urgently to address the matter.
I shall move on to new clause 4, which aims to enable the Secretary of State to modify licence conditions for electricity and gas transmission and to supply licences. The purpose of doing so would be to require that customers bills provide information on the suppliers lowest tariffs. The provision of clear and transparent bills is critical for the effective functioning of the electricity and gas markets, so I have some sympathy with the sentiment behind the new clause. Ofgem has consulted widely on proposals to improve customer information, and has received views from a range of organisations, including consumer groups. I support the changes that Ofgem has made. It is fair to say that whatever we think of Ofgems past record, the evidence we have received and the evidence before our eyes shows that Ofgem has recently made changes that we all ought to agree have been more in the interests of consumers.
As a result of those changesthe hon. Member for North Southwark and Bermondsey referred to thiseach domestic customers bill will need to display the exact tariff name; a comparison of the customers consumption in the period covered by the bill with the corresponding period in the previous year, if available; and, except where a customer has been with a supplier for less than 12 months, the customers consumption for the past 12 months in kilowatt-hours, and the projected costs in pounds per year if the customer remains on the same tariff and uses the same amount of energy.
Customers will be entitled to an annual statement that contains this information plus the principal terms and conditions of the tariff. It will also point out any premiums or discounts that apply to the tariff as compared with the suppliers standard monthly direct debit tariff. The statement will contain a reminder that the customer can switch, along with advice on how to do so. Ofgem has chosen comparisons with the suppliers standard monthly direct debit tariff in order to help inform customers of the offers available to them. This is because it is considered more practicable and helpful than comparing a customers tariff with the cheapest available offer. That might not seem obvious, so I would like to explain why we think that is the case.
Suppliers standard monthly direct debit tariffs are widely available, so they can act as a benchmark when making a comparison with all other tariffs. This is not the case with suppliers cheapest tariffs, which tend to be temporary, introductory offers or only available online. These would not be available to all customers, due to their circumstances or status with the supplier, and may not provide the best deal in the longer term.

Simon Hughes: I hear what the Minister says and I understand her second point, but she has to accept that not everybody has access to direct debit. Millions of people do not and there are othersmillions, I am surewho do not want to use it because they do not trust other people to take the right amount from their bank accounts. Could she just accept that direct debit is not a proper or reasonable standard because for many people it is not available?

Joan Ruddock: The hon. Gentleman is arguing a case about the cheapest tariff. My argument is that if there needs to be a tariff for comparison, which is what the amendment seeks, then the direct debit standard monthly tariff is the most appropriate benchmark. So it is not a case of saying that that is what people should go on to, but it is freely available and commonly used, and it is Ofgems and our view that it is the most appropriate benchmark. That is the only context in which I raise that tariff.

Charles Hendry: The Minister referred to the fact that some of the cheapest tariffs may not be available because they may be an introductory offer. The amendment refers to
the cheapest tariff available to the customer from their supplier.
That would by definition exclude tariffs to which they were not entitled. She might also note that one of the things that annoys people most is that they get an attractive introductory offer and as soon as they have been ensnared, the prices start going up. That causes a great deal of anger.

Joan Ruddock: I agree with the hon. Gentleman entirely on that point, but he is proposing something that I cannot foresee being practicalthat for every single individual the energy company could provide the cheapest tariff for that individual, as opposed to its cheapest tariff. There is a real difference, and in order to provide the cheapest tariff to that individual person and household, it would be necessary to know a whole raft of answers to questions about the circumstances of that individual household. The general tenor of debate on these issues has been about the cheapest tariff that the company offers. I took that to be what the hon. Gentleman referred to.
I expect Ofgem to continue to work with energy suppliers, consumers and consumer representatives to ensure that consumers have good information about the best electricity or gas deals and how to switch to them. It is also important that consumers understand their consumption, so that they can reduce it and their emissions as far as possible.
I turn now to new clause 18, which aims to require the Secretary of State to limit by regulation the number of retail tariffs offered by energy suppliers to no more than 10, within six months of the Bill becoming an Act of Parliament. The hon. Member for North Southwark and Bermondsey, who proposed this, said that it was arbitrary to pick on 10. It would be difficult to set a specific number, as distinct from saying that it would be desirable for companies themselves to operate a limitto help with information and to enable people to get the best dealin order to avoid unnecessary and useless tariffs. We would all want to encourage that. To set a specific number does create problems.
It is crucial to the efficient working of the energy market that consumers be able to engage fully with and understand the range of products available to them. Again, I have every sympathy with people who are currently baffled by the array of different tariffs on offer. Like most people in this room, I suspect, I have not delved into this issue in any depth because it is daunting and I do not have the time. We all recognise the difficulties.
However, while undoubtedly well intentioned, the new clause would have an unintended and detrimental impact on innovation and choice. That risks higher prices for consumers, and may also mean that the introduction of tariffs that meet real consumer needs and wants would be slower. We have seen in recent years the growth in popularity of online tariffs and the advent of green tariffs. We can expect further tariff innovations associated with smart metering, such as the new time of use tariffs. If the new clause were adopted, we could anticipate that tariff innovations such as these would be less likely to be introduced and would be introduced more slowly, as suppliers would be more cautious about introducing innovative tariffs that usually have a small and limited market.
In addition, the new clause would make it more difficult for suppliers to offer a range of tariffs tailored to customers needs. For example, there are now tariffs with or without a standing charge, which will appeal to different customers depending on whether they consume large or small amounts of energy. We should also not forget the existing range of social and discounted tariffs aimed at helping the most vulnerable consumers to meet their energy needs. In general, the ability to offer a range of tariffs that can more fully meet consumer needs and enhance the overall competitiveness in the market, leading to lower prices, is of course a positive one.
The critical issue is ensuring that consumers can understand what is on offer and can easily find clear and comprehensive information that will help them make the right choices regarding the most cost-effective energy supplies for their circumstances. Lack of clarity and transparency is the real issue. That is why Ofgem is taking action to address confusion about the range of tariffs available and ensure consumers can select the best tariff for their needs. It has introduced new rules to make suppliers marketing clearer, improve information on all consumers bills and require suppliers to provide customers with a detailed annual statement from this year. The statement will include a comparison of the customers current tariff with their suppliers standard monthly direct debit tariff, as I said, and a reminder that customers can switch. That will help them to establish whether they might be able to move to a cheaper tariff.
Ofgem has also introduced new overarching standards, including requirements that suppliers must not sell a customer a product or service that he or she does not fully understand or that is inappropriate for their needs and circumstances, or offer products that are unnecessarily complex or confusing. Most importantly, Ofgem will be monitoring the effectiveness of the remedies; as part of the process, we expect it to review whether the changes have proved sufficient to help consumers understand the range of tariffs available to them.
New clause 19 requires Ofgem to publish a full list of available energy tariffs in the national, regional and local press at least three times a year. The published tariffs would be fixed and be the only ones available for the six months following publication of the list. It is, of course, important that consumers should have easy access to the information that they require to understand the full range of tariffs.
Following its probe into retail energy markets, Ofgem is taking action to ensure that consumers are aware of the range of tariffs available and can select the best tariff for their needs. As I set out earlier, customers will get with their current tariff a comparison with their suppliers standard monthly direct debit tariff and a reminder that they can switch. That will help them work out whether they might be able to move to a cheaper tariff. In addition, Ofgem has introduced new rules that require written estimates to be provided prior to the completion of door-to-door sales, to help prevent mis-selling.
Consumer Focus also plays an important role in overseeing the switching and price comparison websites. Consumer Focus accredits reputable price comparison websites through the confidence code, its voluntary code of practice. Accredited websites help consumers decide the best deal for their circumstances, by comparing their current suppliers tariffs and usage with those of all the major suppliers.
I am not sure whether it was the hon. Gentlemans intention to limit the introduction of new tariffs, and changes to the rates of tariffs, but that would be a consequence of the drafting of the new clause. Such a requirement would limit customer choice and significantly undermine competition by limiting the opportunity for the introduction of new tariffs, or the amendment of existing onesa point made by the hon. Member for Angus. It could also lead to higher overall prices for consumers. If tariffs are fixed for six months, suppliers would probably load an extra risk premium on to customers because they would not be able to respond to price changes and price shocks in the wholesale market. Furthermore, fixed rate energy deals suit the needs of some consumers, but not all of them.
The debate has covered a number of important issues related to energy tariffs. All of us consider this to be a field where many unsatisfactory practices still continue. Ensuring that consumers can understand their own bills and the other options available to them, and can be confident that they will not get hit with price rises without appropriate forewarning, is central to the delivery of the fair deal for consumers to which the Government are committed. However, a number of measures have been implemented recently to address those issues and we look forward to seeing more action from Ofgem in due course. I therefore believe that the hon. Members amendments and new clauses are unnecessary at this stage.

Simon Hughes: The Minister has given a careful and gentle reply, but consumers need a robust ministerial response to an organisation that has existed for many years, and which the British public view as one of the most feeble regulators. As my hon. Friend the Member for Harrogate and Knaresborough said, Ofgem has been pathetic in upholding the interests of consumers over the years; it has always been slow off the mark and behind the curve. It is always unwilling to be tough enough for the utility companies and it has always responded belatedly and slowly to public pressure.
To be fair, however, Ofgem has moved in recent months and I have outlined its current position. However, it is not acceptable that we should have to wait for it again to consider when it will move next. My hon. Friend and I have indicated what needs to happen. If the Government are not willing to table a new clause or amendment on Report to ensure that people know in advance what their bills will be, we will do it for them. I believe that all Opposition parties and a significant number of Government Back Benchers would support that. The Government ought to realise the way the wind is blowing and join those who see the need to stand up for the consumer. I hope that the Minister will not resist that too much.
I am also minded to try to persuade my Opposition colleagues that, when they choose subjects for Supply days, they should table a motion along the lines of, This House has no confidence in Ofgem, with a proposal for reducing the salaries of those in charge until they understand the implications of what they do. We have to get the message across. I hope that those who listen to and read our deliberations understand that some of us think that theyparticularly the poor and disadvantagedhave been ripped off and have not been supported by the regulator, in all the time that it has had power. I do not think that I can be clearer. If, after the general election, there is not an overall majority, Ofgem had better watch out. [Hon. Members: Oh!] I hope it gets the message loud and clear.
I have dealt with the issue of needing to tell people the price in advance. I will not talk at length about the benchmark tariff, but I wish to respond to the Ministers reply to my point. I understand the difference between the benchmark and the lowest tariff available to the consumer. I also understand that every household has a different pattern of use and that what may be cheaper for one family may not be cheaper for their neighbour.
Using the standard monthly direct debit figures as a benchmarkthey may indeed be the standard lowest priceimplies, by definition, that people are being incentivised to go for direct debit. That is not an option for a lot of people and many others do not want it as an option. Some people will never trust the system to take money from their bank account. Neither will they ever trust the person who receives the money to control when that happens.

Joan Ruddock: Something has struck me. If a companys cheapest tariff is an online tariff, what is the value in telling consumers who cannot possibly go online about that cheapest tariff?

Simon Hughes: That is why we have to try to get an understanding that works and is available for everybody. We have been logical, because we have said that there should be no difference in the unit cost whether one pays online, through direct debit, by cheque or by prepayment meter. The Ministers point is perfectly valid if we agree that there should be different rates depending on how one pays. If there is no difference of rate, however, that issue does not arise. We can then argue that a standard tariff of a monthly payment might be the cheapest way to do it.
On the number of tariffs, there could be more felicitous or accurate drafting to make sure that we are not seeking to get everybody to move to a new tariff. The intention behind our proposal is that only a limited number of tariffs should be available, but that does not mean that they cannot change over time.
I am open to the argument that there should be eight tariffs rather than 10. The great god choice is not as wonderful as people often proclaim it to be, and socialists in the Labour party do not normally argue that it is what everybody needs most. Our experience with the utility companies tells us that people can have far too many choicesif they cannot understand what the choices are, they have no choice at all.
New clause 19 is not intended to be inflexible, but there would be merit in having some rigour or discipline in the frequency with which people can change the prices. I suggested that the tariff should be advertised three times a year, or quarterly. Most people pay quarterly or more frequently, and very few people pay less frequently than that. That comes back to the initial debate about when people should be told about price rises.
I do not see any reason why there would be the great administrative burden mentioned by the hon. Member for St. Albans in her intervention. If people were to know three months in advance that there was going to be a price rise, they could receive that notification in the batch of three-monthly bills. That would cover most people in the country who get a bill, and I do not see that there would be a great cramping of the style of the utility companies.
We will go away and reflect on the best drafting of the new clauses and amendments. Initially, we were minded to press the amendment to a vote, but I buy the Ministers point about the amendment being more appropriate for a different stage of the Bill, so I will not seek to get colleagues to divide on what is an inappropriately placed amendment. However, I give notice that an amendment, or a new clause, will be tabled on Report, to ensure that Ofgem does its job better and that the utility companies tell people in advance how much their energy will cost and address some of the other issues. I hope that, by then, the Minister will have realised that it will be in her interest, as well as that of the consumer, to support the measure. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Peter Atkinson: In order to make progress, it may be convenient for the Committee to consider clauses 19 to 25 together.

Charles Hendry: On a point of order, Mr. Atkinson. I know that we have had an extraordinarily long debate about the amendment, but we have not had a clause stand part debate. There were some other matters relating to the clause that it would be helpful to discuss.

Peter Atkinson: If the hon. Gentleman wants a clause stand part debate, he is welcome to it.

Question proposed, That the clause stand part of the Bill.

Charles Hendry: I do not intend to keep the Committee long, but I should be grateful if the Minister clarified a few points. Under the market power licence condition, Ofgems powers have been increased due to suspicions that the constraints have resulted in gaming by some of the energy companies, particularly in Scotland. The interconnector to England is limited to 2.2 GW, which is insufficient to cope with the constraints in Scotland, although there are plans to upgrade it to 3.3 GW by 2011. As renewables uptake increases and fossil fuels and nuclear power come off line, Scotland will become more reliant on base load from England and larger connections will need to be made.
There is some ambiguity about whether that new power is to overcome balancing issues in the grid or whether it is to identify gaming, and it would be helpful if the Minister set out what the powers are intended for and how she expects them to be used. There is concern that there is no definition of what constitutes a constraint, and the authority has the ability to determine what that might be. Again, it would be helpful if the Minister set out her interpretation of the concept of a constraint.
We also need greater clarification on what would be considered as gaming. As the volume of renewables increases in the mix, there will be a need for more gas plant as a back-up capacity, which will run only for limited periods. That would inevitably be more expensive per kilowatt-hour, as there will be a need to recoup the capital costs over a shorter operating period. That could be considered gaming, although it would be a natural commercial activity. I would be grateful if the Minister clarified whether she would consider that to be gaming.
The legislation should not be drawn in such a way as to discourage the development of peaking plant available when there is a need for a small amount of extra capacity in times of great demand, as that could discourage investment. We need a distinction between what was referred to during the evidence-taking session as a good spike, a signal that demand is outstripping supply, and a bad spike, where there is considered to be an abuse of market power. I would be grateful if the Minister provided further clarification on those issues before we continue with further consideration of the Bill.

Michael Weir: I want to raise some concerns about the market licence condition. After hearing the evidence from Ofgem and the energy companies, I remain slightly confused as to what the position is, so I would like to press the matter further.
As I understand it, Ofgem takes the view that it would like more power to control excessive returns in the wholesale market and has particular concerns about balancing market constraints in the grid system. As has been pointed out, the main constraints appear to be in the Cheviot gap and the interconnect between Scotland and England. ScottishPower has raised the prospect that the situation has a very adverse effect on the two main Scottish generators and the ability to invest in future plant.
When we explored the issue in evidence, it appeared that the main problem was that there should have been a major upgrade of interconnection before the adoption of the British electricity trading transmission arrangements, or BETTA, system that brought the Scottish grid into the UK-wide transmission system. That was not done, and the result has been that due to weaknesses in the grid, the present system of constraints has arisen. As I understand itperhaps the Minister can clarify thisgenerators can be paid not to generate electricity at certain times when the grid cannot take the electricity because of a lack of capacity. That is a concern.
As the hon. Member for Wealden said, when the amount of renewables changes on the grid, and as we see other types of generation, coal and gas could increasingly become a back-up system for renewables when not enough is produced from wind or whatever. It could become very difficult for them to come on the system if capacity was constrained. My main concern is that while Ofgem appears to take the view that companies might deliberately exploit the system to make excessive profit, it does not seem to me that it produced any concrete examples in its evidence of when that has happened. It mentioned that it had set up the Competition Act inquiry, but apparently the matter was not pursued.
It is fair to say that there is a lot of disagreement between Ofgem and the companies about the real reason for ending the inquiry. Can the Minister tell us anything more about that? In particular, will she tell us why she feels the Competition Act cannot deal with the matter? I would have thought that if there was any evidence of an electricity company abusing its market position in such a way, the Competition Act should have been able to deal with it.
When I pursued the issue with Sarah Harrison of Ofgem in the evidence session, she stated that it was important to think ahead. She said:
In a world that envisages a connect-and-manage approach to transmission access, those opportunities for constraints on the network are going to get even greater. Therefore, there is the risk that undue exploitation can be exercised.[Official Report, Energy Public Bill Committee, 5 January 2010; c. 72, Q172.]
In other words, Ofgem seems to be of the view that someone in the future could do something to benefit from the constraints, although there is no evidence that that has been done at present. Sarah Harrison also quoted a figure of £125 million as the cost of such constraints as evidence that the clause should go through. However, on being pressed by me, she conceded that this was the cost of constraint within the whole grid system, rather than that due to abuse of the constraint system. Does the Minister have figures if she feels there has already been abuse within the system, as opposed to constraints over the whole system? Again, if I understand it correctly, that arises because of deficiencies in the grid system, and not necessarilyalthough it could be the casedue to abuse. It is important to make that distinction.
If we are to have a truly open market in energy, we cannot also try to restrain generation in this manner. ScottishPower made a point about the adverse effect of risking investment in new generation in Scotland and therefore security of supply. The point, which was explained by Rupert Steele during his evidence, is that in a commodity-only market, there needs to be a way to signal the value of capacity to stimulate investment. If restrictions are placed on the balancing market and only short-run marginal costs went into the equation, there would be less incentive to invest in new plant. I reiterate that that could become important when we are looking at more renewables, with regard to where the base load comes from. Not all plant can be turned on and off as necessary. In essence, it seems that rather than necessarily being a symptom of use of the market, the constraints might well signal the need for greater investment.
The clause might have the perverse effect of discouraging new investment. If there is evidence of the consumer suffering as a result of what is happening, clearly the market power licence condition is fair and should be pursued. I would like some reassurance, however, that we are not going down a road that will endanger necessary investment in the grid system and future generating capacity.

Joan Ruddock: Before I answer the specific questions that have been asked, it might help the Committee if I try to set out what is embodied in the clause, because it is easier to get the framework.
The clause sets out the framework within which the Secretary of State will have the power to introduce a condition on generation licences to protect the consumer from undue exploitation of market power in the electricity balancing market. Ofgem has identified an aspect of that market that is vulnerable to the exploitation of market power, to the detriment of consumers. In March, it consulted on potential solutions to the problem, including the introduction of a specific licence condition. That consultation revealed that one example of the exploitation might have led to costs of up to £120 million to the consumer during the 2008-09 financial year alone.
The problem area being targeted is unique to the electricity balancing market. As electricity cannot be stored, National Grid has an obligation to ensure that supply and demand are constantly in balance. In some areas, the transmission lines that transport the electricity do not have the capacity to move excess generation to the areas that need it. Such situations are known as transmission constraints. I was asked to define constraintthat is the definition. In such scenarios when a constraint arises and there is generation one side of it that cannot be received at the other side, National Grid will often rely on the help of a number of plants either side of the constraint to increase or decrease generation and so maintain balance.
Occasionally, due to the location of a constraint and the spread of available generation, National Grid will find itself dependent on a specific company to alter its output to help to balance the system. That can create an opportunity for the generator to exploit that market power and charge over-high prices for its services. Those excessive fees are ultimately passed on to the consumer via electricity bills, and that is what we wish to prevent by taking the new power.
It is vital that the problem is addressed nowthe hon. Member for Angus referred to this. In the coming years, the transmission network is set to be upgraded considerably, and that work will ultimately remove the conditions that provide the opportunities for the exploitation of market power. In the short term, however, the practical implications of that development and maintenance of the network will be an increase in transmission constraints and hence the potential for exploitation. I believe that the clause provides a proportionate and effective way to ensure that the consumer is protected during the coming years. Importantly, it is a targeted solution that will avoid regulatory uncertainty, and therefore any impact on much-needed generation investment.
Four specific conditions have been outlined under which a generator may be deemed to have received an excessive benefit as a result of a transmission constraint period. I emphasise that this is all about excessive benefits, not normal commercial opportunities that arise in the balancing of the electricity market. The first condition is when an electricity company has acted in such a way as to make it more likely that National Grid will be forced to accept its offers and bids in the balancing mechanism at a high price. For example, it may withhold the electricity produced by a particular plant from the market because it predicts that National Grid may later rely on that plant to produce electricity to balance the system. The company is then able to use a resulting position of market power to charge an excessive price for that increase in generation. That is probably what the hon. Member for Wealden was referring to when he asked if it was gamingI imagine that it is the appropriate term.
The second condition applies when a generator takes advantage of market power during an existing transmission export constraint and charges National Grid an excessive amount to reduce its generation, knowing that the system operator will have no choice but to accept. The third condition refers to a bilateral balancing contract with National Grid known as an inter-trip. Inter-trips are an automatic switch that can be fitted to a generation plant. It will trip if the transmission system becomes overloaded and it allows National Grid to run the system at a higher capacity than would otherwise be possible. Licence holders are able to charge an arming fee to allow the set up of the controls on their generation plants. There is evidence to suggest that arming fees for commercial inter-trip services have not always been priced reasonably and the clause aims to prevent such exploitative behaviour.
Those three conditions correspond with those scenarios that need to be tackled to protect the consumer. Although it is not our intention to go further, we need to be sure that the Government have the power to address any related scenarios that come to light as we consult on the licence condition, and that is the purpose of condition four. Although it is not expressly set out in the clause, our clear intention is that the licence condition will relate only to situations where there are transmission constraints, and it will be applied to all generators on a non-discriminatory basis. Our aim is not to prevent generators from flexing prices or following normal market behaviour. The conditions have been specifically designed to target behaviours that enable generators to earn excessive profits where restricted transmission capacity allows them to do so.
I shall now try to answer some of the specific questions asked. The hon. Member for Angus asked about the Competition Act inquiry into the pricing and dispatching of ScottishPower and Scottish and Southern Energy. It was launched in 2008 by Ofgem to look into a problem with transmission constraints on the Cheviot boundary, as the hon. Gentleman indicated. As Ofgem failed to find an infringement using competition law, the case was dropped. Ofgem was confident that exploitative practices had been taking place and believed that the lack of infringement was due to intrinsic limitations applying to competition law in these specific circumstances, as there are often difficulties with defining market power in the electricity market.
We have found that when Ofgem is confident that there is abuse taking place, and companies are charging higher prices or benefiting more than they should, it has been unable to fit the complaint into competition law. That is why it has sought a means of tackling the problem and why we have sought to facilitate that in the clauses on market power licence conditions.
I was also asked how Ofgem had arrived at the figure of £125 million and if that sum related to excess profits or the overall cost of the balance arrangement. Following the evidence session, I asked for clarity on that point, with which I have now been provided and which I shall share with the Committee. Ofgem, in its initial consultation document on the market power licence condition, estimated that in a worst-case scenario, the potential direct costs attributable to undue exploitation of market power in the balancing mechanism could have been as much as £125 million in 2008-09. That is very much a maximum that assumes that every balancing action in Scotland will involve the exercise of market power. That figure is derived by taking the average megawatt per hour price for various balancing actions in Scotland, comparing that with the average price in England and Wales, and then multiplying by the forecast level of Scottish constraints. The higher average price in Scotland is considered to be due to lack of competition and evidence of the exploitation of market power.
Hearing that may not please the hon. Member for Angus, but that is the basis on which Ofgem calculated the figure. It is clearly the worst-case scenario, using constraints that exist between Scotland and England; if they were all the subject of market power abuse, that would be the outcome.

Michael Weir: I understand what the Minister is saying, and I look forward to considering in more detail the written explanation, which seems reasonably complex. However, it is clear that there are natural constraints in the system, and it seems unfair to cite the full cost of those constraints as the result of misuse of market power. It appears that Ofgem is saying that its calculation of £125 million is likely to be due to the abuse of market power. However, as we all know, there are constraints in the Cheviot boundary. There are also constraints in other parts of the system, and if Ofgem takes that attitude, it may well make companies think, Do we want to invest if we are not going to get a return, because it is going to push our prices down?

Joan Ruddock: The issue is complex, as the hon. Gentleman has said. Obviously, we do not have the expertise. It is difficult for any of us to distinguish whether natural or normal commercial practices would be involvedwhether a company was gaining some financial reward from an opportunity in the balancing market, or whether it was exploiting the position and gaining an excessive reward because of its market power. That is the judgment that Ofgem has made and the calculation that it had to quantify. It has indicated what the case would be in that fairly extreme scenario.
We must be willing to accept that Ofgem is confident that there have been abuses of market power and that it needs to have an opportunity to make accusations properly within a legal context, when it thinks that that has happened. Of course, there also have to be systems of fairness and accountability, and companies so charged have to be able to make their case. We will come to that later in the Bill. Here we are providing the framework within which such presumed misuse of market power can be tested by Ofgem. At the moment, that appears not to be the case.
Let me try to conclude. The Government believe that the electricity balancing market is currently vulnerable to exploitation, and estimates suggest that there may be a high cost to the consumer. For that reason, we think it absolutely right that we should target such exploitation and ensure that consumers are properly protected until the underlying cause is resolved through the completed upgrade of the transmission network.
I will acknowledge one further point that I was asked about and which I have so far failed to address. It regards the question of whether this is a problem of the need to further upgrade and invest in the transmission network. That is absolutely the case. Over time, with greater investment, we envisage the problem not existing in the way that it does today. We will come on to discussions about investment in the transmission network. The Government are absolutely committed to making such investments, as a result of which the problem will undoubtedly not exist in the same way in future.

Question put and agreed to.

Clause 18 ordered to stand part of the Bill.

Peter Atkinson: Would it be convenient to take clauses 19 to 25 together?

Simon Hughes: On a point of order, Mr. Atkinson. I would like to ask the Minister questions on clause 23.

Clauses 19 to 22 ordered to stand part of the Bill.

Clause 23

Penalties: appeals

Question proposed,That the clause stand part of the Bill.

Simon Hughes: I have a simple pair of questions, which go together. The Minister might not be able to answer them now, which I will understand, but it will be helpful if she can. If not, can she supply the information and make it available to the Committee at the earliest available date?
The clause deals with penalties imposed by Ofgem under their regulatory powers. We want to consider that fully, and we will want to consider it again on Report. Can the Minister publish and circulate the penalties that have been imposed by Ofgem until now, with a summary of the reasons for which they have been imposed; the amounts of the penalties; the periods that companies or others were given to pay them; confirmation that they have all been paid; an indication of where there have been appeals in the past; and, when there has been a challenge through a procedure or in the courts, the penalties imposed.
It has been difficult to discover exactly what the history is without a comprehensive trawl. The Minister will have better access to the information than some of us, and I am sure that she has the ability to work with Ofgem to give us the information at the earliest date. May I request first that that information is supplied and, secondly, that it is given to us in reasonable time before the Bill is considered on Report, so that if we want to come back to this, we can?

Joan Ruddock: I think I would be well advised to accept the hon. Gentlemans offer, but I will write to him rather than try to trawl through all my briefings and give him an inadequate or incomplete answer. On the penalties imposed by Ofgem in relation to the breach of the market power licence condition, companies will be allowed to appeal directly to the competition appeals tribunal. In that instance, they may dispute the decision to issue a penalty, the size of that penalty and the date by which they have been directed to pay. That is sufficient information on the clause. I will undertake to provide in writing, as speedily as possible, all the information that the hon. Gentleman has requested.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clauses 24 and 25 ordered to stand part of the Bill.

Clause 26

Time limit for the imposition of financial penalties

Simon Hughes: I beg to move amendment 23, in clause 26, page 21, line 36, at beginning insert With effect from 1 June 2010.

Peter Atkinson: With this it will be convenient to discuss amendment 5, in clause 26, page 22, line 1, leave out subsection (3).

Simon Hughes: Clause 26 is in the part of the Bill that covers financial penalties by the Gas and Electricity Markets Authority. The issue is a live one; it is the other half of the debate in which the case of Margaret Erskine was raised. I referred to it earlier and indicated that I would come back to it in the context of this debate.
My hon. Friends and I have tabled two amendments. Amendment 23 would change the rules about the period in which an investigation can occur. We raised the matter with Ofgem representatives in the evidence sessions, and they said that this was one of the two areas where they had asked for changes. They asked Ministers for greater powers and the Ministers had acceded.
Amendment 23 would bring the new timetable into operation from 1 June 2010. The intention is to try to get it up and running as soon as is reasonable. The Government have said that they want the Bill to be on the statute book before the general election. That has to take place no later than June, so the date in the amendment seems reasonable.
Amendment 5 would delete subsection (3) of clause 26, which states:
The amendments made by this section do not apply in relation to any contravention or failure occurring before the day on which this section comes into force.
I want to make it very clear that we do not seek to provide a retrospective penalty; we seek, from now on, to extend the period in which investigations can start and continue from one year to five years. It is clear to Ofgem, to the Government and to us that the present system is flawed. Investigations have begun but, to speak bluntly, they have run out of time. The clock has ticked and passed the deadline for investigations to be completed. Ofgem has said that to Ministers; Ministers have said that to us. We all agree that we need a longer period.
The amendment seeks to allow current problems to be investigated for a period of up to five years, and for that to apply to issues that are live now, as opposed to issues that will be live in future. I do not think that that should offend the lawyers at all. The extension to the time limit would not apply to licence breaches that happened before the date of the passing of the Act. It would not make things retroactive; it would simply allow Ofgem to impose a penalty for a licence breach already committed, rather than introducing new retroactive offences.
The clearest example of that was the differential tariff pricing that I referred to earlier, when Energywatch made a complaint to Ofgem. Energywatch complained in March 2008 over npowers use of the tariff year. A tariff year was defined at the time by npower:
When we publish gas charges, we state that 4,572 higher priced primary block kilowatt-hours will be applied each year. The year quoted is a tariff year that begins with the introduction of any changed charges. When npower change the way customers are charged, a new tariff year commences from the date it changed.
It stated that its customers had never been informed of the existence of a tariff year. They had never been given a definition of it, nor had how to operate it ever been explained to them. npower has conceded that; it is not a matter of dispute. The charge is, therefore, that because how the tariffs were structured was changed and the tariff year was restarted at a different time, consumers never reached the 4,572 kWh threshold and so did not benefit from the falling block tariff. In the end, they paid the higher rate for more than 4,572 units.
Consumer Focus has looked at that, as Ministers know. I know, too, that the Under-Secretary of State for Energy and Climate Change is due to have a meeting shortly with Consumer Focus to continue to look at the issue. [Interruption.] That is what I am told, anyway, whether he knows that that is in his diary or not. I tell him that on 16 January 2010, The Times reported that
A spokesman for the Energy Ministers office said: Mr. Kidney will be meeting Consumer Focus to discuss the details contained in the briefing.
He has it coming down the trap towards him and that is a good thing. The analysis by Consumer Focus says that 2.2 million customers were overcharged by an average of £47 each, amounting to over £100 million in total.
I took the matter up with Ofgem and npower, writing to them after it had been brought to my attention by the lady in south-west London. In a letter to me, Ofgem has said that if the Consumer Focus analysis is right, action should be taken, but that in legal terms its hands are tied by the one-year barrier that currently applies. I will not take the Committee through the whole of my correspondence with Andrew Duff, the chief executive officer of npower, who courteously and promptly replied on 12 November, nor the correspondence I had with Mr. Buchanan, who replied promptly on 20 November. However, I will select a couple of things from their replies.
Although npower argues that it has made changes so that the issue will not arise again, and has explained that it was all part of a process of changing how it bills, the reply does not adequately deal with the failure of information and the fact that people were led to believe that they would be on a lower rate than they were after a certain time. Margaret Erskine, the lady who brought the matter to my attention and that of my hon. Friend the Member for Kingston and Surbiton (Mr. Davey), and then was also in contact certainly with The Times, if not with other newspapers, was offered and, I understand, accepted a small compensatory ex gratia payment by npower. However, she has changed her supplier, as she was a thoroughly discontented npower customer.
The matter had been brought to the attention of the press in the autumn by Consumer Focus, because of not only that ladys complaint but that of another named complainant: Andy Beck, an npower customer from Teignmouth in Devon. He said:
When Ofgem received the complaint in March 2008 it still had two months before the time limit ran out and could, among other things, have issued a stop the clock order. Whats more, where it cannot act directly, it could pass its conclusions on to other people or organisations that could take the matter further.
There is, therefore, evidence that a large number of people were overcharged. It may be a matter of only £50 each, but if there are 2.2 million customers that would come to over £100 million.
There was some uncertainty about when Consumer Focus started its investigation. Although I had been led to believe that the inquiry had started, when npower wrote to me it said that it had not been alerted to that fact. Consumer Focus has confirmed, however, that it has done its investigation. In the briefing, which I am told the Under-Secretary has also received, the watchdog says:
Following an investigation, Consumer Focus has concluded that npower overcharged 2.2 million of its gas customers in 2007-08. Our analysis suggests that the potential overcharge per person is a maximum of £78, with an average figure of £47 per customer, equating to an overall consumer loss in excess of £100 million...It is our view, therefore, that the £6 provided in goodwill payments to just 200,000 of the 2.2 million customers affected is not sufficient.
The investigation covered 2007 and 2008, and the report elaborates on those data. The report is on the Under-Secretarys desk, as it is on mine. To be fair to npower, it denies that it has breached its licence conditions or its contract with customers. It explains that its promise not to charge more than 2,572 units a year referred to the tariff year, which can be different from a calendar year, and that it resets the clock each time it changes its terms and conditions, as it did in May and November 2007. The supplier also said:
We completely reject any suggestion that our gas customers are each owed £47 and have seen no calculations to support this figure.
There is, therefore, a dispute.
As well as the proposal that in the future there is a five-year period, we seek to ensure that where there is a breach that could otherwise be investigated, but where the clock might tick and time might run out before the change is made, the investigation is able to continue. It does not, it seems to me, break the principle that the supplier should not be liable for something they were not aware of. If there is a breach they are in breach. In the past they would only have been time-barred because the investigation could not continue.
If we are to give Ofgem some credibility in the futureI will not repeat my concern about its past failure of credibility from the consumers point of viewwe should allow it to carry on investigations where there are major issues of complaint. I hope the Minister will be sympathetic if not to the specific wording, at least to the proposition behind these amendments.

Joan Ruddock: These amendments relate to slightly different aspects of the coming into force of the new five-year time limit for Ofgem to impose financial penalties for breaches of licence conditions. Amendment 23 would ensure that this new time limit came into force on 1 June this year. As it stands the amendment would only affect the penalty provisions under the Gas Act 1986; it would not apply to the provisions under the Electricity Act 1989. Clause 36 already provides that the penalty provisions will come into force at the end of the period of two months beginning with the day on which it is passed, so we believe it is quite unnecessary to specify a commencement date within clause 26 itself. I agree there should not be a long delay, but this has clearly been addressed in the Bill, so the amendment is not necessary.
Amendment 5 would mean that the new five-year time limit for the imposition of penalties by Ofgem would apply retrospectively. I know the hon. Gentleman has argued that it is retroactive but that does not mean it is not retrospective. It is. Legislation does not usually have a retrospective effect. The prospect of doing this can create legal uncertainty for businesses and inhibit investment in markets. There are also potential human rights implications. Although it is probably true that many businesses will already retain some relevant information for five years or more, it is likely that they will only keep some information for up to 12 months because that is all that is required to comply with any Ofgem investigations under the current time limit.
I understand why the hon. Gentleman feels so passionately about this. I share his passion because undoubtedly customers have had very bad treatment and it has not been possible to compensate them for that. Two examples that I sought to have explained to me clearly needed to be addressed. One was the £2 million penalty that Ofgem recently imposed on EDF for very poor performance in providing electricity connection quotations. Ofgem identified more than 100 breaches of the time limits for providing quotations, but was only able to impose a penalty for 47 of those breaches because they had not come to its notice in time and had therefore occurred more than a year previously when this was reported. Obviously in this case we have a company being fined and penalised for behaving badly, but not to the full extent because of the one-year time limit.
On npower, the hon. Gentleman has quoted extensively from records and the experiences that individuals have had of restarting the tariff year, so that they had to build up again to get back on to the cheaper rate. While Ofgem was able to secure compensation for some customersobviously, the one to whom the hon. Gentleman referred was one of thoseit was constrained by the one-year time limit regarding the amount that it could achieve and the number of people who could be compensated.
I have no doubt that this is a pressing problem. The Government have sought to find a solution through the clause, which was tabled as a consequence of Ofgem having experienced difficulties and having come to the Government saying, We need a means of being able to address the problems. As I have indicated, at the moment we must allow for the fact that companies might be keeping the required information for one year only, as that is all that is needed to comply with any Ofgem investigation.
It would not be fair to make the new time limit retrospective because many licensees might not have the evidence to defend themselves adequately if Ofgem decided to investigate an alleged breach of licence condition that is within the new five-year time limit, but before the legislation came into force. In other words, at the time of the alleged breach, the company would not have known that it could be investigated up to five years later and should therefore keep records accordingly.
Not giving the provision retrospective effect will also give businesses time to ensure that their systems are suitable to deal with future Ofgem investigations under the new time limit. Although I sympathise entirely with the hon. Gentlemans wish to see the measure brought in more quickly, for all the reasons I have outlined, it is regrettably not possible for me to support the amendment.

Simon Hughes: I am grateful for the Ministers constructive and sympathetic response. She wins the argument on the first pointI accept that elsewhere in the Bill there is a provision that would bring something into force immediatelyand I will seek leave shortly to withdraw the amendment.
On the second issue, I reserve my position as to whether we could win the argument about whether the measure was retrospective or retroactive, and therefore within proper legal processes. Obviously, we do not legislate retrospectively, and I buy that. Arguablybut sadlythe Minister has a good point about the practicality of the measure in relation to matters that are currently in train. Her argument about the records being held by the company might mean that it would be impractical to deliver, which could be a barrier to the change. I will go away and think about it. Obviously, I am keen to ensure that we do not allow clear abuse of a suppliers power to result in the sort of customer and consumer disadvantage that has clearly taken place, and which so far can only be remedied in part, it would seem, and on an ex gratia basis, to customers who remain unhappy that, bluntly, they have been deceived and not properly informed.
I would be gratefulas I am sure would many others, not least those who have made complaintsif when the Under-Secretary of State for Energy and Climate Change goes to the meeting that he spoke about, he made a report on it to those with an interest in the matter, possibly including members of the Committee. That report could be used and passed on to our constituents who have raised the issue, or to other individuals who have made a complaint and feel disaffected or not adequately compensated.
Following his conversation with Consumer Focus, if the Under-Secretary can do anything that would get companies to make an appropriate reimbursement of moneys that people have paid that were over and above what they expected to pay, that would be a positive advantage, even if it cannot be done by legal enforcement. I look forward to constructive engagement with that issue and with the ministerial team when it reports back. For now, however, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 ordered to stand part of the Bill.

Clause 27

Adjustment of charges to help disadvantaged groups of customers

Simon Hughes: I beg to move amendment 24, in clause 27, page 22, line 6, leave out considers and insert discovers.
This is a simple amendment with which we seek to replace one word with another. This part of the Bill centres on the adjustment of energy charges and clause 27(1) reads:
If the Secretary of State considers that some customers of an energy supplier (the disadvantaged customers) are treated less favourably than other customers of the energy supplier (the advantaged customers) as respects charges for energy, the Secretary of State may by regulations make a scheme for the adjustment of charges for energy with a view to eliminating or reducing the less favourable treatment.
The mission is a good one, but I think that the drafting of the clause has omitted the conventional word that allows the Minister discretion over the matter. I seek to make it a more objective consideration and a question of fact so that, if the Secretary of State discovers that there are less favourably treated customers, the obligation on him to think about regulations follows on from that. We can then talk about whether he would have to introduce them or not. I would be grateful if the Minister could tell me whether I am right in thinking that the drafting of the Bill could be tighter and whether the amendment would meet that objective. [Interruption.]

Charles Hendry: The Under-Secretary says Youre wrong from a sedentary position. I am sure that he will give us a chance to understand his thinking with greater clarity in a moment. The hon. Member for North Southwark and Bermondsey has picked up on an important issue that runs all the way through clause 27. It is a bad piece of drafting and it will be a bad law if passed as drafted. The clause is too subjectivewe will discuss that during the clause stand part debate. The fact that, according to its opening sentence, the Secretary of State can consider something means that he will have a huge raft of powers. What is missing from the clause is real evidence. In fact, the word discovers is not sufficiently robust; the word should be establishes or confirms. There should be no doubt about the evidence. It should not be based on the Secretary of State having a slight hunch or deciding on a whim one morning that something is not quite right.
We want a much more robust approach and the sort of factual evidence that Ofgem would be required to have if it was going to exercise the powers. It does not seem right that the Secretary of State should be able to operate on a whim and a hunch on a Monday morning when he pops into the office thinking, I need a headline today; what shall I do? Oh, somethings popped up here! He will then be able to act on it as if he was dealing with it on the basis of fact. The wording is sloppy and we look forward to the Under-Secretary trying to reassure us that it is not as sloppy as it appears.

David Kidney: I will engage with the amendment. As the hon. Gentleman has said, his point relates to the clause stand part debate, during which I shall defend the entire clause to his satisfaction, I hope.
Clause 27 will allow the Secretary of State to make schemes to remove any disadvantage suffered by customers of an energy supplier who are treated less favourably than other customers of that supplier in terms of the prices they pay for their energy use. Amendment 24 would allow the Secretary of State to take such steps where he discovers that some customers are being treated less favourably rather than where he considers that to be the case.
The very first debate on part 2 of the Bill was introduced by the hon. Member for North Southwark and Bermondsey and centred on whether we should change a may to a shall. There is a may in line 9 of clause 27, but the hon. Gentleman is not seeking to change it to shall. I would therefore argue that the Secretary of States decision whether to make a scheme remains permissive whether we use either discovers or considers.
There must be some circumstances in which considers is a broader and stronger word than discovers, but it might be the other way around in other situations. For example, if the Secretary of State is told of a shocking situation, one could say that, having discovered it by being told, he should do something about it. Discovers might be thought of as a more pressing word than considers. Alternatively, the Secretary of State might know for a long time that something is terrible and it might be the length of time that is has carried on being terrible that makes the Secretary of State feel that something should be done. Discovers would not be the appropriate word then, because the Secretary of State knew for ages, so considers would be the stronger word. Sometimes one is better and sometimes the other is.

Charles Hendry: The Minister has given us two different versions of the word consider. Does that not show why the word is inadequate in this circumstance? Will he consider or discover a better word, which is tougher and clearer, rather than one that can be interpreted in totally different ways?

David Kidney: No, I do not accept what has just been said. I gave two different scenarios to show the difference between considers and discovers depending on the circumstances. Consideration is a word that suggests that somebody has weighed up all the evidence, given thought to it and made a decision. Judges give consideration to cases and Secretaries of State give consideration to things. Consider is an appropriate word.
The amendment would, in practice, make little difference to the clause. Whether or not the amendment is made, the Secretary of State will still have to identify a group of customers that is being less favourably treated and then decide whether to exercise his discretion to make a scheme. The change would not mean that the Secretary of State must provide for a scheme whenever he becomes aware that unfair treatment is happening.
As I explained in an evidence session, these are intended to be back-stop powers. In the first instance, Ofgem will be expected to act quickly when it discovers evidence of undue discrimination among customers. If, however, Ofgem is unable to take appropriate and speedy action to deal with any such unfairness, the Secretary of State will consider whether consumers are being disadvantaged and, therefore, whether he needs to introduce a scheme using the powers. The powers give the Secretary of State the discretion he needs to make schemes and ensure that consumers do not suffer harm. I can assure hon. Members that Ministers are ready to use the powers if it becomes necessary. I hope that the hon. Member for North Southwark and Bermondsey will agree to withdraw his amendment.

Simon Hughes: The hon. Member for Wealden made absolutely the right criticism of the clause. This probing amendment sought to deal with the first of the discretions, and there are others, as the Minister has pointed out. We have tested the issue before and this clause stand part debate allows us to test it again. There is considers or the alternative wording, which may need to be adjusted, and there is the may or must option. The hon. Member for Wealden was right in the points that he made.
I understand the Ministers argument; yes, judges do give consideration to things. The argument gets weaker when he says that the measure is there as a back-stop and if Ofgem does not intervene, the Secretary of State is there to pick things up. The history of doing things when Ofgem has not, has not been a happy one, so that is not an entirely persuasive argument. We are certainly keen that there should be back-stop powers because if Ofgem continues to be a relatively toothless tiger, somebody has to do something. I am happy that there is a two-stage operation.
I will reflect on what the Minister has said. This is not about semantics. There are normal words that parliamentary draftspeople use; I think that this one comes from the style of the conventional formulation rather than a more precisely required formulation. I am sure that we will come back to the wording, either in this House or the House of Lords. For the time being, I am happy to go away and reflect. I hope that we can build a consensus on this side of the Committee on the best way to deal with the clause as a whole, including this word. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Simon Hughes: I beg to move amendment 10, in clause 27, page 22, line 25, at end insert
(d) liquid petroleum gas for domestic use customers;
(e) fuel oil for domestic use customers..

Peter Atkinson: With this it will be convenient to discuss amendment 11, in clause 27, page 22, line 32, at end insert
(d) as respects a relevant liquid petroleum gas for domestic use customer;
(e) as respects a fuel oil for domestic use customers..

Simon Hughes: These are probing amendments to explore whether we should add the two categories of people who have already featured in our debates: those who receive liquid petroleum gas for their domestic heating and those who receive fuel oil. The clause gives Ofgem the power and the Secretary of State the back-up power to intervene where there is seen to be differential treatment. There is an attempt to categorise the sort of people who might be regarded as disadvantaged, or a combination of whom might be disadvantaged. The list currently reads: electricity customers, gas customers and dual fuel customers. The amendment is to explore whether LPG customers and fuel oil customers should be included.

Michael Weir: I understand what the hon. Gentleman is trying to do. I think it is similar to what I tried earlier. Clause 30 defines an energy supplier, and suppliers of LPG or fuel oil do not seem to fall under it, so his amendment would be ineffective.

Simon Hughes: The hon. Gentleman is right. As we have discussed before, the market means that the suppliers are often the local garage or local distributor; they are not suppliers in the context of the Bill. We need to find another formulation. The hon. Gentleman did indeed try to open up this debate before and we supported his efforts. There is a will in the Committee to try to deal with the people who are not on the gas mains in large numbers in Scotland, Wales and England. I want the Minister to tell me how to include LPG and fuel oil customers within the abilities of Ministers and Ofgem to consider who is disadvantaged, so that they can have the disadvantage remedy. This formulation may not be right, but there may be another that is.
The second amendment in the group is to do a similar thing later in the clause, so it would allow both the customer category and the charges and costs to be taken into account. I look forward to the Ministers reply.

David Kidney: As I highlighted during our debate on social price support last Thursday, I fully recognise the difficulties faced by some people who do not have access to the gas grid and therefore have little option but to buy heating fuels. Amendments 10 and 11 aim to bring the heating oil and LPG markets within the parameters of the Secretary of States power to adjust energy charges to help disadvantaged groups of consumers. They suffer from the legal flaw that the hon. Member for Angus pointed out: that the scheme relates only to licensed suppliers and these people are not licensed.
Those off-gas grid consumers, who are likely to be electricity-only customers, are already some of the potential beneficiaries of the clause as drafted. The clause gives the Secretary of State powers to address unfair discrimination between different categories of gas and electricity customers and provides for the introduction of schemes to adjust charges accordingly.
One of our main motivations for introducing these powers is for Ministers to have powers to ensure that people who are off the gas grid will not be treated unfairly in comparison with those who are on it. Our current intention with regard to the design of the new social price support mechanism, for a rebate on electricity bills, will ensure that consumers who are off the gas grid will receive the benefit. The hon. Member for North Southwark and Bermondsey asked to hear what I am going to say about how we can improve the situation. Clearly, the major option is to introduce some kind of new licensing system.
As I said last Thursday, I do not believe that bringing domestic heating oil and similar fuels under the same type of regulation as the gas and electricity markets is the right solution. Neither do I think it would be proportionate as the solution. The Electricity and Gas Acts deal with markets where there are natural monopolies, which means that competition cannot be expected on its own to protect consumers from the risk of unfair exploitation. In contrast, there is no natural monopoly in the distribution of heating oil, gas oil or liquefied petroleum gas. Consumer protection legislation such as the Sale of Goods Act 1979 applies to those fuels, and there is competition legislation. As we debated last week, the Office of Fair Trading, the Competition Commission and local trading standards all have powers that apply to those sectors. The Competition Commission has investigated the LPG market and after five years recommended changes and made orders as a result.

Phil Willis: We understand the Ministers point and he is right to repeat his earlier arguments. However, he has had time to reflect on last weeks debate and to suggest how we bring the suppliers of liquid gas into a scheme in which the people paying their tariffs get access to some sort of social tariff from the suppliers. The reality is that, despite getting something knocked off their electricity bills, people in rural areas in particular will now pay extraordinarily extortionate prices for a product that they have no option but to buy. The Minister is proposing to do absolutely nothing, which is the frustration.

David Kidney: That is an unfair characterisation of my position. I do not think that suppliers can charge extraordinary amounts of money for their services without any recourse to a remedy. As I mentioned, the whole of consumer protection legislation is there to protect them, as is the Office of Fair Trading and the Competition Commission.

Bill Wiggin: I do not normally intervene if I can possibly help it but, it would be helpful if the Minister realised quite how difficult it is in my constituency for customers for LPG find it. The Competition Commission recommended that the tanks that people have at their houses do not continue to belong to the companies that supply them but become exchanged between various suppliers, so to some extent things have got better. If the Minister saw a contract, he would find that he has to sign up for two years, irrespective of any price change. It is not fair to say, therefore, that there is a proper free market, because he has to bind himself into his supplier because he is an LPG consumer. Whether they can move the tanks around is no longer the criterion that holds the customer, giving them no freedom of choice and no freedom to escape from a contract once they have signed up to it. I do not think that the Minister was necessarily aware of that, although I have written to him about it on behalf of my constituents.

Peter Atkinson: Order. Before the Minister repliesI am happy for him to do sowe are in danger of repeating a debate that we have already had in Committee. I hope that hon. Members will bear that in mind.

David Kidney: I find it extraordinary that a Labour Minister is defending the industry and free market operators from the Conservative and Liberal Democrat parties. Nevertheless, that is my current position. I am saying that there is a competitive market, subject to laws about consumer and competition protection, which provides the protection for those customers. For those in fuel poverty, I have suggested a route, which, as the Chairman reminded us, we debated for a long time last week.

Phil Willis: The Minister is missing my point. We understand that there is a market. The reality is that, whether someone is the wealthiest or the poorest person buying heating oil, for instance, they pay the same price. The only difference is how much someone pays at a particular time. The poor buy smaller amounts and therefore pay more per litre than the wealthy. There is no social tariff whatsoever in those markets. The Minister is not promising to do anything about it. The amendment tabled by my hon. Friend the Member for North Southwark and Bermondsey is attempting to ascertain from the Minister a more comprehensive response to the issue than simply knocking down the amendments because they are inappropriate at a particular time.

David Kidney: The hon. Gentleman and I will never come to one mind, it appears, because we shall both carry on along parallel lines. I am saying that people in rural areas off the main gas grid will get support if they are in fuel poverty or at risk of fuel poverty from a scheme that gives them money off their electricity bills. I do not see how he can possibly deny that, whereas I cannot deny his point that I am not proposing a similar scheme to give them money off their heating oil, their coal or their LPG. I am not suggesting such a scheme. An active, caring Government can give people alternatives to dependency on those energy sources, to make the market even more competitive.
For example, as well as the social price board we can look at energy efficiency measures that we promote, assist, subsidise, advertise and so on. We can look at alternative technologies that enable people to find new ways to heat their homes, so that they are not dependent on the traditional forms of energy. We can also look at new ways to help people make their payments, for example through credit unions.
To come back to the point made earlier by the hon. Member for Leominster, of course the Competition Commission made two orders last year. One was about transparency of charges and the other one was about enabling people to switch suppliers. So the points that were made have been addressed.

Simon Hughes: Obviously we are listening and we hear what the Minister says. However, will he accept that, irrespective of the results of the investigation by the Competition Commission, all the evidence from consumer organisations is that there are large parts of the country where there is no choice? If one looks at the country as a whole, there is choice, but for many people there is no choice in their county, region, village, town or community.

David Kidney: Perhaps this will come as a surprise but, as the Minister, I do not pretend to have all the solutions. The one point that I have considered since our debate last week and that I certainly took to heart is whether it would be valuable for hon. Members if I were to offer to bring together the appropriate people so that we, as a Committee, can have a discussion with those people present.
For example, we could bring in Consumer Focus, the expert body on the position of consumers; the Office of Fair Trading, the expert body on competition law, or Ofgem, the expert body on regulating gas and electricity markets. If it would be valuable for members of the Committee to get together with me and those expert bodies to look at what protection the law presently provides, what those actions last year by the Competition Commission and Ofgem on the licence conditions have done, what further powers those bodies have and to investigate whether they feel that they need more powers, I am happy for us to do so. We can get together to examine that idea in greater detail, between now and the Report stage. If that would help hon. Members[Interruption.] I am hearing that people would find it helpful, so I will endeavour to arrange such a meeting so we can consider all those matters together.
I hope that the hon. Gentleman will withdraw his amendment.

Simon Hughes: Those are some of the most helpful and positive responses we have had.

Phil Willis: What a nice man.

Simon Hughes: I am not sure whether the Minister will want to put that comment on his election manifesto, but we will see. [Laughter.]
The Ministers words are very helpful. I saw assent from the Conservative Members as well as from my hon. Friend the Member for Harrogate and Knaresborough. I am sure that our colleague, the hon. Member for Angus, would think the same about this suggestion. It is a helpful way forward. There are clearly people who are disadvantaged. I hope that, on that basis, there can be progress and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Simon Hughes: I beg to move amendment 6, in clause 27, page 22, line 37, at end insert , or
(c) the method by which the customer pays their energy bill.

This would allow the Government to take into account differentials in charges between prepay customers and direct debit customers when considering the adjustment of charges to help disadvantaged customers.
This is the last of the amendments to this part of the Bill on Ofgem and it returns to an issue that we have touched on before, so I need not elaborate on it, other than very briefly.
The amendment is about discrimination in relation to the method by which customers pay their bill. We seek to amend clause 27 so that when the Secretary of State comes to use the powers given to him by the clause, subject to our clause stand part debate shortly, it would read as follows:
The Secretary of State may make such assumptions and calculations as he or she considers to be appropriate for the purposes of this section, including assumptions and calculations to enable him or her to take into account
(a) different charges for the same kind of energy, or
(b) charges for different kinds of energy.
We wish to add:
or
(c) the method by which the customer pays their energy bill.
One of the inequities is that there is a differential pricing system depending on the way that someone pays their bill. Some people have all the options; some people have some of the options. Those who have more options have more choice and are less disadvantaged than those who, because they do not have bank accounts or because they have had a difficulty in the past and are required to have prepayment meters, have much more limited options.
I should be grateful if the Minister would indicate whether he is willing to go further than Ofgem has gone, to ensure that we move to a system whereby someones payment mode would not bring with it a price advantage or disadvantage.
Of course, I know that the utility companies find it easier and, therefore, cheaper if people pay by direct debitthat is obvious. They find it easier, although it is more expensive for them, if people use the prepayment method. It is easier in one sense in that they are guaranteed the income. They find it more difficult to chase up people who pay quarterly by cheque or by going to the post office or whatever. It really would be a better system if we all knew that, however we paid, it would be at the same rate. I should be grateful if the Minister told us whether the Government are minded to go in that direction.

David Kidney: In preparation for dealing with this amendment I received a briefing from my top-rate group of officials. They do an excellent job, but even with all their assistance I still had difficulty in capturing the argument about how many of those in fuel poverty use a prepayment meter and how many of those who use prepayment meters are in fuel poverty. My officials got me the 2007 figures for England and I thought it would be useful to begin my response to this amendment by setting them out.
First, of the people who use prepayment meters how many are in fuel poverty or at risk of falling into it? Among gas customers, 2.2 million households use prepayment meters. In the bottom 40 per cent. of income distribution, 60 per cent. or 1.3 million households use a prepayment meter and 47 per cent. use standard credit. In the top half of income distribution, 600,000 households or 27 per cent. use a prepayment meter and 40 per cent. pay by standard credit. There are not huge differences between the figures. There were 2.9 million households in 2007 using prepayment meters for electricity. In the bottom 40 per cent. of income distribution, 60 per cent. or approximately 1.75 million use a prepayment meter and 47 per cent. use standard credit. In the top half income distribution, 29 per cent. or around 870,000 use a prepayment meter and 43 per cent. pay by standard credit.
Coming at it from the other direction, how many people who are in fuel poverty use a prepayment meter? Some 2.8 million households were in fuel poverty in England in 2007. Of the electricity customers within that 2.8 million, 1.1 million paid by direct debit, 1.2 million paid by standard credit and 500,000 paid by prepayment meter. So the easy comment that the hon. Gentleman madeI do not mean that as a criticism because we all fall into this trap of saying that these are the poorest most vulnerable customersis not borne out by the figures.

Phil Willis: They might be.

David Kidney: Indeed. Who knows which of the 2.8 million are the most severely impoverished? If 500,000 of the 2.8 million use a prepayment meter, clearly more than 2 million who are fuel poor in this country are not paying by prepayment meter. Of gas customers 900,000 pay by direct debit, another 900,000 pay by standard credit and 400,000 pay by prepayment meter. That does not add up to 2.8 million so 600,000 pay in other ways. I thought that those two sets of statistics were useful to frame the debate.

Simon Hughes: That is really helpful. I am very grateful. Obviously this will be in Hansard, but perhaps the Minister could let us have the tables at some stage. We have all been scribbling furiously, but that would be helpful. May I ask for one clarification? Does standard credit mean cheque, postal order or cash? I assume that it does, but could the Minister confirm that?

David Kidney: Standard credits refer to people who get a bill and pay it. It could be by cheque; it could be that they get their bank to send the payment; or they could go and pay the bill at the bank or the post office.
I have one last statistic. It is not something that my officials got for me specially; it was in the Ofgem probe. When it was investigating the reason for the difference in what prepayment meter customers were charged compared with other customers, and it said that some of the charges were excessive, it asked what the cost-reflective amount of prepayment meter was. Roughly, once it had stripped out the things that it thought were not acceptable, it said that the cost was something like £88 per year. I do not want to place too much emphasis on a particular amount because it will vary between customers and over time, but I thought that a ballpark figure would be useful for our discussion.
I shall now deal with the amendment. It would make it clear that the powers for the Secretary of State to adjust charges to help disadvantaged consumers would allow him to take into account payment methods when calculating the level of disadvantage. In fact, clause 27 is sufficiently wide to enable the Secretary of State to take payment methods into account.
Ofgems probe proved that campaigners were right that there had been some scandalous examples of overcharging of prepayment meter customers in the past. I count myself as having been one of those campaigners, when I was a Back Bencher. As a result of Ofgems finding and its decision to act, there has been a transfer of value of £96 million from suppliers to prepayment meter customers, and a new licence condition that says that in future the only difference permitted by Ofgem in its role as a regulator will be the actual cost of the payment method.
The explanatory statement provided by the hon. Member for North Southwark and Bermondsey makes it clear that the amendment aims to tackle the tariff differentials between prepayment meter customers and direct debit customers. I understand the concerns that have been raised, but I am hesitant to agree that politicians substitute the view of the suppliers and Ofgem with their own to that degree. Action has already been taken to address price differentials that are not cost-reflective. Ofgems probe investigated the differentials that consumers paid for different gas and electricity payment methods, and rooted out differentials that did not reflect the differences in cost to the gas and electricity suppliers of the different payment methods.
In September 2009, Ofgem changed licence conditions, to ensure that differences between payment methods are no more than broadly cost-reflective, and in a recent report Ofgem stated that tariff differentials for prepayment meter customers now reflect cost differences, on average. Five out of the big six energy suppliers have gone further and have equalised their prepayment tariffs with standard credit tariffs on both gas and electricity. For example, the average dual fuel prepayment customer now pays £4 less than the average standard credit dual fuel customer. That compares with a figure of £41 more in July 2008. It has been suggested that further action is needed to equalise direct debit and prepayment meter tariffs. The motivation is to help fuel-poor customers using prepayment meter tariffs, which I would support. However, equalising tariffs in that way shifts where the costs of the payment method fall, so that people on standard credit and direct debit tariffs subsidise prepayment meter customers, as prepayment meters cost more to provide. That might help the up to 20 per cent. of fuel-poor people who use prepayment meters, but it would not help the around 80 per cent. of fuel-poor customers who are on standard credit or direct debit tariffs. Fuel-poor customers on such tariffswe have discovered that there are many such householdswould end up subsidising prepayment meter customers.
I fully agree that consumers should not suffer unjustified price differences because of their payment method. I support Ofgems work in putting in place new rules to protect the consumer further, in particular the proposal to clarify bills and require an annual statement, and the prompt to switch, which will include a comparison of the householders tariff with the suppliers base monthly direct debit tariff. All those moves should help consumers to understand how to get a better deal on electricity and gas.
We need to keep looking for improvements, to make the system work better for consumers. We are legislating to give Ofgem improved enforcement powers to strengthen consumer protection, and to make it clear that Ofgem should address consumer detriment proactively, as and when it is identified. In the coming years, the national roll-out of smart meters will also give added impetus to removing all such differentials.
We will continue working with Ofgem and the energy companies to ensure that consumers, particularly the vulnerable, are given a fair deal, and we will continue to push forward our other measures, such as the introduction of the new social price support, to tackle more effectively the wider problems of fuel poverty. Tackling fuel poverty is not just about energy prices, of course; energy efficiency and incomes must be addressed too. The Government are doing so through programmes such as Warm Front and the winter fuel allowance.
As I said at the outset, the amendment is not necessary to give the Secretary of State the power to do what the hon. Gentleman urges on me, but I have explained my hesitation to commit to doing so. I have found the debate useful in weighing the arguments for and against making the difference, and I am sure it will remain a live issue if the clause remains in the Bill when it becomes an Act and when we consult over the summer on further measures to reach our shared objective of tackling fuel poverty. In the circumstances, I ask the hon. Gentleman to withdraw the amendment.

Simon Hughes: I thank the Minister for his comprehensive, well-informed and helpful reply. I have two short questions, which he might be able to answer straight away. For the purposes of Hansard, I have given away the briefing that would have allowed me to answer one of them myself, but it would be helpful to put it on the record. He said that five of the six big companies do not now disadvantage prepayment customers with their tariffs. I have read the papers, but I have forgotten which one still uses differential payments. Will he put that on the record?

David Kidney: It is British Gas, on gas.

Simon Hughes: Secondly, the Minister, in starting his reply and before he went into the substance of the issue, said that he does not believe that it is necessary to amend the Bill to give Ministers the power to deal with differential payments if they want to. Will he elaborate? I do not doubt what he says, but it would be helpful if he could put it on the record for me and those who have not seen what measures in the Bill or existing legislation give that power.

David Kidney: Subsection (6) refers to the customers charges, and the overall impact of subsection (1) and the assumptions and calculations made in subsection (7) enable the Secretary of State to determine whether charging people according to their method of payment makes them disadvantaged customers.

Simon Hughes: That is helpful. Again, I do not doubt what the Minister says. I will have a look at how the provisions work together. I read them differently, but if that is the advice given, I am prepared to accept that it is probably more likely to be right.
On the substance, before I accept the Ministers request, the figures that he gave were helpful. They are counterintuitive in many ways. I think that we all started from an assumption about how many people in lower income groups, or who pay more than 10p in the pound on fuel bills, pay by forms such as direct debit. He said that it was probably about 30 per cent. of the total, which is much higher than I expected. I think that everybody else in the Committee probably had the same view. The figures are useful, and we can all learn from them in ongoing debates.
I am sure that I remember the Minister campaigning on the issue before he became a Minister. I do not doubt his commitment. I urge him to keep monitoring the issue to ensure that we minimise disadvantage and give people the freedom to make and vary their choices without financial penalty, depending on what works best for them. I am content that we have made good progress, and I am grateful to him, his officials and others for helping us. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.
Charles Hendryrose

Peter Atkinson: Order. Before I call Mr. Hendry, I say to the Committee that shortly we will have been sitting for three hours. I do not know for how long Committee members propose to go tonight, but if they want to go much beyond 7, I will adjourn the Committee for an hour for supper. Perhaps Committee members can work out how they want to play it.

Charles Hendry: I can think of few more enjoyable ways to spend your birthday evening, Mr. Atkinson, than by listening to debate on clause 27 rumble on. There is a modest amount of debate still to be had on the clause, and I think that significant progress will be made after that. If you are minded to allow us to sit slightly beyond 7, and if that is the view of other Committee members, we can return briefly to the subject to finish it on Thursday morning.

Simon Hughes: On a point of order, Mr. Atkinson. I may be wrong, but the advice that I received is that there might be a vote at 7 in any event. Certainly, for our part, we will be content to adjourn for today at 7 pm. I do not put pressure on the hon. Member for Wealden. I am content for him to make the points that he wants to make, if the Labour Whip is content, and I am sure that we can co-operate fully for the beginning of the next sitting.

Charles Hendry: I am more than happy to proceed on that basis. I may even finish before we reach 7 oclock, and it may be the hon. Gentleman who is cut off in his prime as we debate clause stand part.
We have touched on some of the aspects of the clause which cause concern, and on the fact that it does not seem to be good drafting, but a recipe for confusion. The Government have not set out the groups that they consider to be disadvantaged, which we should help in the Bill. It is not clear whether that might be by geographical location, although it could be. Therefore, it could relate to people who live in Scotland, the north-west or other parts of the UKfor example, in the Ministers constituencywho he could decide are disadvantaged. It could relate to people who have waited nearly three months before being advised that their tariff was being changedthere is a whole range of different categories of people who could be helped by the clause, but it is so far from clear who the Minister has in mind that it is rather difficult to work out what is intended.
Also, the whole background to the clause is rather inadequate. When the Ministers before us were giving evidence to the Committee, the Minister of State said:
I hope that when members of this Committee say, as they have been doing, Let us have this and that and something else in the Bill, they will have in mind the realities of this parliamentary Session. It is important that the Bills measures get through, because they are real priorities and I believe that they are shared priorities across the political spectrum.[Official Report, Energy Public Bill Committee, 7 January 2010; c. 102, Q226.]
In talking about clause 27, the Under-Secretary took a rather different view, saying that the power introduced under the Utilities Act 2000
has not been used since 2000, so it is legitimate to ask why it should be on the statute book at all...I think it is a useful backstop power and I am happy to give an assurance on the record that it is intended as a backstop for those kinds of situations.[Official Report, Energy Public Bill Committee, 7 January 2010; c. 123, Q270.]
Therefore, there is no urgency on the matter. The other power has been there since 2000, but it has never been used, and so far we have not been given a compelling reason why this power needs to be introduced at this stage.
However, I think it is the nature of the clause that causes the greatest concern, particularly that of subsection (7), which allows the Secretary of State to
make such assumptions and calculations as he or she considers to be appropriate.
During the evidence sessions, Rupert Steele from ScottishPower told us that
there is a clause that says that if the Secretary of State does not know any data, he can make it up...It is clause 27(7).[Official Report, Energy Public Bill Committee, 5 January 2010; c. 19, Q37.]
Clearly, the nature of that aspect, the immense amount of discretion and the way in which it is phrased simply show that if there is no absolutely compelling evidence or a completely factual basis, action can be taken in whichever way the Minister considers appropriate.
We were treated over Christmas, Mr. AtkinsonI do not know whether you saw itto a revival of many television programmes, foremost among them being Not The Nine OClock News, 30 Years On. There was a wonderful moment where Rowan Atkinson was berating a police officer for arresting someone for being in possession of an offensive wife. He further went on to charge him for walking through a built-up area wearing a loud shirt. The ministerial approach is the same sort as the Not The Nine OClock Newspeople are arrested for reasons that could never be clarified. If we are going to have such powers put into law, there has to be much greater clarity as to why they should be used, and the basis on which they are going to be adopted and developed. If we are not going to have institutionalised confusion, we need to have a re-think of the approach.
Sarah Harrison from Ofgem made it completely clear in her evidence that the regulator could not act on such powers. It has to be evidence-based, and it has to work on that basis, or else it simply cannot take action. My great concern about the clause is that it gives Ministers the ability to have draconian powers, having confusion between what their powers are and what those of Ofgem are, and to act on the basis of supposition and potential prejudice, rather than on the basis of fact. I think we need much greater assurances from the Minister as to why the approach should be taken.

Ordered, That the debate be now adjourned(Steve McCabe.)

Adjourned till Thursday 21 January at Nine oclock.